Unlock Editorial Digest for Free

FT editor Roula Khalaf chooses her favorite stories in this weekly newsletter.

Shares in Polish fashion group LPP fell 28% on Friday after U.S. short seller Hindenburg issued a report accusing the company of “false divestment” of its Russian business.

Hindenburg claimed that Gdansk-based LPP was still making money in Russia, despite telling investors it would end operations in the country after Russia's full-scale invasion of Ukraine two years ago.

LPP said Hindenburg's accusations were “part of a coordinated disinformation attack that has been in preparation for five months and aimed at lowering LPP's share price”. The company said it had earlier informed the Polish Ministry of Foreign Affairs and tax authorities about the matter, adding that “it cannot be ruled out that such actions may be an attempt to gain influence in the LPP”.

The Warsaw-listed group sells clothing in Europe and the Middle East and has about 30,000 employees. It was founded in Gdansk more than 30 years ago and has grown into one of Poland's largest clothing companies.

When the war in Ukraine broke out in February 2022, LPP's shares fell nearly 50% as investors priced in potential revenue losses in a key market.

The fashion company closed its stores in Russia in March 2022 and said in May that it had decided to sell its Russian company Re Trading to a Chinese consortium and end its business operations in Russia after 20 years. The company subsequently told investors in its 2022/2023 annual report that a Russian court confirmed the sale on June 30.

But Hindenburg, citing interviews with former employees, said the company's announced sale had not resulted in an actual divestment of the Russian operations.

“We believe that LPP orchestrated a false 'divestment' strategy to continue its retail operations in Russia while attempting to fool investors and consumers in Poland, Ukraine and other markets into thinking differently,” the report said .”

Hindenburg claimed that barcodes on items sold in LPP's old Russian stores (now trading under different names) could be reverse-engineered to match barcodes on clothing in its Polish stores.

The short-seller also drew attention to the company's continued revenue growth after the divestment, although he told investors that Russia accounted for about a fifth of the group's revenue. The company's 2022/2023 annual report stated that revenue from continuing operations increased by 40% compared with the previous year.

“Looking back at the past 12 months, it’s hard to believe that despite numerous obstacles, adverse macro and microeconomic factors and, above all, the abandonment of the Russian market to become the world’s second largest (after Poland). Our portfolio , we created such good sales results,” LPP told investors in its annual report at the time.

Hindenburg also said the buyer of LPP's Russian business “has no externally verifiable presence, track record in the fashion industry or clear ties to China.”

Hindenburg is best known for his January 2023 report on Indian billionaire Gautam Adani, which wiped billions of dollars off the value of his empire. Adani has denied accusations of stock manipulation and accounting fraud.

The LPP on Friday also linked its case to that of Adani, saying “Adani was targeted by Hindenburg in a similar manner.” The LPP added: “We have successfully demonstrated that we are not the first company to be on the radar of intelligence agencies.”